Tribunal holds amended Rule 8D applies prospectively; no section 14A disallowance can be added to book profit under section 115JB

5-Second Takeaway

The Tribunal held that the amended Rule 8D, effective from 2 June 2016, is prospective and does not apply to assessment year 2016-17. It also held that no disallowance under section 14A read with Rule 8D can be made while computing book profit under section 115JB.

The assessee challenged the disallowance made under section 14A on the basis adopted by the Assessing Officer. The officer had computed the amount at 1% of the annual average of the monthly averages of the opening and closing balances of investments.

The Tribunal accepted the assessee’s submission that the amended Rule 8D, introduced with effect from 2 June 2016, operates prospectively. For assessment year 2016-17, the disallowance had therefore to be worked out at 0.50% of the annual average of tax-free investments, as held in earlier Tribunal authority.

On the separate question of book profit, the Tribunal reiterated that a disallowance under section 14A read with Rule 8D cannot be imported into the computation under section 115JB. It followed the Special Bench decision in Vereet Investment (P) Ltd. on that point.

The appeal was accordingly allowed to the extent of these adjustments.